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Notice

Proposed Implementation of Section 6053(b) of the Deficit Reduction Act for Fiscal Year 2008 FMAP

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AGENCY:

Office of the Secretary, HHS.

ACTION:

Notice with comment period.

SUMMARY:

This notice with comment period describes the procedure for implementing Section 6053(b) of the Deficit Reduction Act of 2005, Public Law 109-171 for fiscal year 2008. Section 6053(b) of the Deficit Reduction Act provides for a modification of the Federal Medical Assistance Percentages for any state which has a significant number of evacuees from Hurricane Katrina.

DATES:

Comment Date: To be assured consideration, comment must be received at the address provided below, no later than 5 p.m. on February 26, 2007.

ADDRESSES:

Because of staff and resource limitations, we can only accept comments by regular mail. You may mail written comments (one original and one copy) to the following address only: Department of Health and Human Services, Room 447D, Attention: FMAP Proposed Rule, 200 Independence Ave., SW., Washington, DC 20201.

Submitting Comments: We welcome comments from the public on all issues set forth in this rule with comment period to assist us in fully considering issues and developing policies. Please provide a reference to the section on which you choose to comment.

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SUPPLEMENTARY INFORMATION:

A. Background: Federal Medical Assistance Percentages

Federal Medical Assistance Percentages are used to determine the amount of Federal matching for state expenditures for assistance payments for certain social services such as Temporary Assistance for Needy Families (TANF) Contingency Funds, matching funds for the Child Care and Development Fund, Title IV-E Foster Care Maintenance payments, Adoption Assistance payments, and state medical and medical insurance expenditures for Medicaid and the State Children's Health Insurance Program (SCHIP).

Sections 1905(b) and 1101(a)(8)(B) of the Social Security Act require the Secretary of Health and Human Services to publish the Federal Medical Assistance Percentages each year. The Secretary is to calculate the percentages, using formulas in sections 1905(b) and 1101(a)(8)(B), from the Department of Commerce's statistics of average income per person in each state and for the Nation as a whole. The percentages are within the upper and lower limits given in section 1905(b) of the Act. The percentages to be applied to the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands are specified in statute, and thus are not based on the statutory formula that determines the percentages for the 50 states. The “Federal Medical Assistance Percentages” are for Medicaid.

Section 1905(b) of the Social Security Act specifies the formula for calculating Federal Medical Assistance Percentages as follows:

“Federal medical assistance percentage” for any state shall be 100 per centum less the state percentage; and the state percentage shall be that percentage which bears the same ratio to 45 per centum as the square of the per capita income of such state bears to the square of the per capita income of the continental United States (including Alaska) and Hawaii; except that (1) the Federal medical assistance percentage shall in no case be less than 50 per centum or more than 83 per centum, (2) the Federal medical assistance percentage for Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa shall be 50 per centum.

Section 4725 of the Balanced Budget Act of 1997 amended section 1905(b) to provide that the Federal Medical Assistance Percentage for the District of Columbia for purposes of Title XIX and for the purposes of calculating the Enhanced Federal Medical Assistance Percentage under Title XXI shall be 70 percent. For the District of Columbia, we note under the table of Federal Medical Assistance Percentages the rate that applies in certain other programs calculated using the formula otherwise applicable, and the rate that applies in certain other programs pursuant to section 1118 of the Social Security Act. Section 2105(b) of the Social Security Act specifies the formula for calculating the Enhanced Federal Medical Assistance Percentages as follows:

The “enhanced FMAP,” for a state for a fiscal year, is equal to the Federal medical assistance percentage (as defined in the first sentence of section 1905(b)) for the state increased by a number of percentage points equal to 30 percent of the number of percentage points by which (1) such Federal medical assistance percentage for the state, is less than (2) 100 percent; but in no case shall the enhanced FMAP for a state exceed 85 percent.

The “Enhanced Federal Medical Assistance Percentages” are for use in the State Children's Health Insurance Program under Title XXI, and in the Medicaid program for certain children for expenditures for medical assistance described in sections 1905(u)(2) and 1905(u)(3) of the Social Security Act.

On November 30, 2006, at 71 FR 69209, we published the FMAP and Enhanced FMAP rates for each state for October 1, 2007 through September 30, 2008 (fiscal year 2008). This notice describes the procedure we would use to modify the fiscal year 2008 FMAP rates to comply with the requirements of section 6053(b) of the DRA, which we discuss more fully below.

B. Section 6053(b) of the Deficit Reduction Act

Section 6053(b) of the Deficit Reduction Act (DRA) of 2005 requires that calculations used in computing the FMAPs disregard evacuees and any income attributable to them who were evacuated to and live in a state, other than their state of residence, as of October 1, 2005 as a result of Hurricane Katrina. The DRA defines “evacuee” as “an affected individual who has been displaced to another state” (Sec 6201(b)(3)). This provision applies to any state that the Secretary of HHS Start Printed Page 3392determines has a significant number of Katrina evacuees.

The modification of the Federal Medical Assistance Percentages and the Enhanced Federal Medical Assistance Percentages under the Deficit Reduction Act affect only medical expenditure payments under Title XIX and expenditure payments for the State Children's Health Insurance Program under Title XXI. The Department believes that the percentages in this rule do not apply to payments under Title IV of the Social Security Act. In addition, the Title XIX statute provides separately for Federal matching of administrative costs, which is not affected by the subject Deficit Reduction Act provision.

Section 6053(b) applies to calculations for FMAPs for any year after 2006. The underlying data that serve as the basis for the FMAP calculations are produced by the Department of Commerce's Bureau of Economic Analysis (BEA). Section 1101(a)(8)(B) requires FMAP calculations to be determined using data from the Department of Commerce. Therefore, the standard practice in the calculation of the FMAPs is to utilize the most up-to-date BEA state per capita income data. The Fiscal Year 2008 FMAPs, which were published on November 30, 2006 use the state per capita income estimates for 2003-2005. The first year that the relevant data—state per capita personal income estimates—would show any impact related to Hurricane Katrina is 2005, since Hurricane Katrina occurred in August 2005. Therefore, this rule proposes to implement Section 6053 (b) of the DRA starting with the Fiscal Year 2008 FMAPs, since the 2008 FMAP calculation will be the first year that include 2005 data.

We believe the likely Congressional intent of this provision was to assist any state that took in a large number of Katrina evacuees. The statute instructs HHS to remove Katrina evacuees and their income from the FMAP calculation for any such state. This adjustment would protect such a state from an adverse fluctuation in its FMAP based on Katrina evacuees. This adjustment would also, however, remove any positive fluctuation in the FMAP based on Katrina evacuees. It is not clear that this latter impact was intended by Congress.

We believe that, because Katrina evacuees are likely to have lower income than the general population of the states to which they are evacuated, accurate data would probably result in no adverse fluctuation in FMAP for any state using the standard calculation methodology. Instead, there would probably be a positive fluctuation under the standard calculation that would be eliminated by the statutory adjustment. In other words, the statutory adjustment could result in that state having a higher per capita income (and lower FMAP) than if the adjustment was not made.

In many instances, evacuees either had lower incomes before or lost their employment and means of support after Katrina. Evacuees' per capita income, therefore, would be less than the per capita income of the general population of the state(s) to which they were evacuated. Eliminating persons of lower per capita income from any affected state would raise overall state per capita income, thus lowering its respective Federal FMAP percentage.

Moreover, the standard methodology used by BEA to calculate per capita income does not permit the attribution of all income sources to Katrina evacuees. That is, BEA does not possess the data necessary to count all sources of Katrina evacuees' income (see detailed discussion below), and as a result, we believe our approach offers the best possible calculation given the limited data available.

We propose in this rule a methodology for the adjustment that would take advantage of the way in which state population is usually calculated to comply with our understanding of Congressional intent in the first year, and raise the FMAP slightly for any affected state. But we are concerned that this methodology would have the expected effect of lowering the FMAP in future years compared to the calculation methodology.

We are also concerned that it will be more difficult to accurately disregard evacuee population and income in future years. It will also become increasingly difficult to isolate Katrina evacuees' income to adjust per capita state income calculations as BEA only captures aggregate state income, not evacuees' income.

C. Calculation of the Federal Medical Assistance Percentage

The Federal Medical Assistance Percentage (FMAP) is based on the percentage of low-income persons residing in a given state. By statute, it is no lower than 50% and no higher than 83%. The key variable in calculating the FMAP is the estimate of state per capita personal income. The state per capita income estimates are then plugged into the statutory FMAP formula. There are two components to the state per capita personal income estimates. The denominator is the Annual Population Estimate; the numerator is State Personal Income.

1. Modification to Population Estimate

The first adjustment that must take place under Section 6053(b) of the DRA is to the state population estimate. The state population estimate must be adjusted by removing all Katrina evacuees in each state that were evacuated across state lines.

Because the state population estimates used in the 2005 Per Capita Personal Income estimates are from July 1, 2005, which is prior to Hurricane Katrina, these Katrina evacuees do not appear in the data that is the basis for the state population estimates for any state covered by this provision. Thus, while Section 6053(b) of the DRA requires it, no adjustment to this data is required to disregard Katrina evacuees.

To ensure compliance with the statutory requirement to disregard Katrina evacuees, however, we explored the possibility of adjusting the population estimates to reflect the influx of evacuees, and then disregarding the actual number of Katrina evacuees. For this purpose, we used BEA estimates of the number of Katrina evacuees relocated to the various states based on FEMA data. We then used BEA's estimates of Katrina evacuees relocated to each state to adjust upward the population of those states to account for the influx of evacuees. We then considered whether the influx of evacuees may have displaced other individuals from the population of the affected state(s), but we found no evidence to support an adjustment based on this possibility. Following the requirements of Section 6053(b), we then would subtract these evacuees from their respective states to arrive at a state population prior to the effects of Hurricane Katrina. The resulting calculations arrive at the July 1, 2005 population figures reported by the Bureau of the Census for the time period just prior to Hurricane Katrina. This analysis confirmed that no adjustment is required to the population estimate used in the calculation of the state per capita personal income for 2005 to disregard Katrina evacuees.

2. Modification to State Personal Income Estimate

The second adjustment that must take place under Section 6053(b) of the DRA is to state personal income. State personal income must be adjusted by removing all income that is attributed to Katrina evacuees, and HHS has consulted with BEA at length on how to do so.

According to standard BEA methodology, state personal income consists of the sum of wages and Start Printed Page 3393salaries, supplements to wages and salaries, proprietor's income, rental income, personal dividends, personal interest income, and transfer receipts less contributions for government social insurance. State personal income is the income that is received by, or on behalf of, all the persons living in a state. In addition, source data for wages and salaries, supplements to wages and salaries, and contributions for government social insurance (which are compiled on a place of work basis) are adjusted for persons who work in one state and live in another.

BEA published these data in “State Personal Income for the Fourth Quarter of 2005 and Per Capita Income for 2005,” which appeared in the April 2006 Survey of Current Business, and subsequently revised in the October 2006 Survey of Current Business. In Table D of the April 2006 article, BEA gives the adjustments it made to account for some of the economic effects of Hurricanes Katrina, Rita, and Wilma that are not reflected in the source data used to estimate state personal income for 2005. We will use these data as the basis for making the adjustments to the FMAPs required by the Deficit Reduction Act.

Implementing Section 6053(b) is complex because the data related to personal income are not detailed enough to fully conform to all of the provision's requirements. For example, BEA cannot isolate the fraction of a state's total wages and salaries that were paid to Katrina evacuees who moved there from another state. Therefore, HHS cannot remove income paid to Katrina evacuees for wages and salaries.

Further, HHS can only estimate some of the “interstate income” attributable to Katrina evacuees. For purposes of this rule, interstate income is personal income that was paid to Katrina evacuees in a different state than the state they were living in before Hurricane Katrina. Included in our estimate of interstate income are governmental transfer receipts that were paid to evacuees who may have moved across state lines. Governmental transfer receipts consist of all transfer payments, such as TANF or Medicaid, as well as transfers from business, such as net insurance settlements. Transfers such as Medicare or Medicaid are government payments made directly or through intermediaries to vendors for the care provided to individuals.

Below we discuss three types of transfer receipt adjustments included in Table D: FEMA disaster assistance, interstate population dispersal, and net insurance settlements.

a. FEMA Disaster Assistance

FEMA disaster assistance is one type of transfer payment included in personal income. For FEMA disaster assistance, payments are recorded at the location where the recipients are residing at the time of payment. Therefore, if the evacuees receiving FEMA disaster assistance were evacuated to another state, the FEMA disaster assistance payment would be counted as income in the state that they were evacuated to.

However, we can not know what proportion of the FEMA disaster assistance payments were made to interstate evacuees and what proportion were made to permanent residents of the states in question. For Texas, it is likely that the majority of the FEMA disaster assistance payments were made to interstate evacuees. For Alabama, the FEMA disaster assistance payments were likely made to both Alabama residents as well as interstate evacuees.

Although we cannot determine the extent to which the FEMA disaster assistance payments represent income to interstate evacuees as opposed to permanent residents, we propose to include the entire FEMA disaster assistance adjustment in the estimate of interstate income. We make this decision because we believe it is best to include as much countable income of the evacuees as possible in order to comply with the intent of the statute, especially given that we can not count all sources of income for the evacuees.

b. Interstate Population Dispersal

The interstate population dispersal adjustment is BEA's estimate of governmental transfer receipts that were paid to Hurricane Katrina evacuees while they were living in the states to which they had been evacuated. The transfer receipts included in the interstate population dispersal adjustment include payments such as Medicaid or TANF, as listed above. We propose to include the interstate population dispersal adjustment in our estimate of interstate income.

According to Table D, some states gained income due to this adjustment and some states lost income. A positive interstate population dispersal adjustment, such as the adjustment for Alabama, means that the state was estimated to receive an increase in transfer income because evacuees moved into that state from another state, and received transfer payments in their new state. A negative interstate population dispersal adjustment, such as the adjustment for Louisiana, means that the state was estimated to receive a decrease in transfer income because evacuees moved out of that state to another state, and received transfer payments in their new state.

BEA estimates these interstate population dispersal adjustments based on the evacuee population that moved across state lines after the hurricane, and the average transfer payment per evacuee. The evacuee population is based on the FEMA Current Location Report.

c. Net Insurance Settlements

Net insurance settlements are income derived from insurance payments made based on claims for lost or damaged property. For net insurance settlements, BEA records the payments as income in the state where the homes were destroyed.

Therefore, even if an evacuee received an insurance payment in a different state from where their property was damaged, it would be recorded as income in the state where the damage occurred. If an individual was evacuated from Louisiana to Texas because his or her home was destroyed in the hurricane, and he or she received an insurance payment while living in Texas, BEA would record this payment as income in the State of Louisiana, not the State of Texas.

Therefore, we propose not to include the net insurance settlements adjustment in our estimate of interstate income, because the income has already been re-allocated to the state where the evacuees lived before Hurricane Katrina.

The methodology described above details the FMAP adjustments that were made to accommodate the requirements of Section 6053(b) with the available data. The calculations this year result in a positive impact on any affected state, i.e., increasing FMAPs. As noted above, it is unclear what effect Section 6053 (b) will have on future years should this provision carry forward beyond fiscal year 2008. It is possible that any affected state will receive lower FMAP rates when updated data become available.

D. Affected States

According to Section 6053(b), the Secretary of HHS must apply this provision to any state that the Secretary determines has a significant number of Katrina evacuees. However, the statute provides HHS no guidance on how to determine what number of evacuees constitutes a “significant number.” As a result, HHS attempted to provide an objective means to determine a “significant number” of evacuees.

HHS has chosen to determine significance by calculating the numbers of evacuees beyond two standard Start Printed Page 3394deviations from the mean of all states' number of evacuees. Measures of significance generally involve how observations vary in their distance from the average of all observations in their particular group. In this case, the observations are the number of evacuees relocated to each of the respective states. A measure used frequently to determine significance is the standard deviation from the mean or average. We propose to use as the measure of a significantly affected state those that incurred an influx of evacuees greater than twice the standard deviation from the mean of all states.

Using the BEA estimates for the number of evacuees relocated to each state (except as noted below for Louisiana) we calculated an average influx of evacuees for all states of 7,159. The distribution of evacuees into all states around this average produces a standard deviation of 22,375. Therefore, we propose to apply the provisions of Section 6053(b) to any state with an influx of evacuees greater than 51,909 (the mean plus two standard deviations). This methodology specifies only Texas, with 154,018 evacuees, having such a significant influx of evacuees.

Therefore, we propose to apply Section 6053(b) to Texas. Because the DRA defines “evacuee” as “an affected individual who has been displaced to another state” (section 6201 (b)(3)), we propose that Louisiana not be considered an affected state. Although there were intra-state evacuations within Louisiana, the provision is intended to apply only to any state that took in a significant number of evacuees from another state.

BEA has made available on its Web site a version of Table D that includes adjustments for all states. The Web site address is: http://www.bea.gov/​bea/​regional/​articles.cfm?​section=​articles and the section is: State Personal Income: Fourth Quarter of 2005 and Per Capita Personal Income for 2005, Additional Tables.

E. Projected Effect of the Provision

Using the personal income estimates released by BEA, we have calculated FMAPs for 2008 and the revised FMAPs applying the methodology outlined above. The table below presents the 2008 FMAPs and the revised 2008 FMAPs with the proposed adjustment, and the 2008 EFMAPs and the revised 2008 EFMAPs.

TexasCalculated 20082008 with proposed adjustment
FMAP60.5360.56
EFMAP72.3772.39

As seen in the tables above, applying the proposed adjustment increases the FMAP and EFMAP for Texas.

F. Time Frame for the Adjustment

The language of Section 6053(b) does not provide for a sunset of the FMAP adjustments. Therefore, the implication is that such adjustments would be made in perpetuity. Yet it seems unreasonable to assume that individuals who continue to reside in a state other than those directly impacted by Katrina would still be considered evacuees forever, even after they have established residency and obtained employment in their new state.

As previously mentioned, it is possible that this provision will have a negative impact on a qualifying state's FMAP in future years. The magnitude of this negative impact is not known at this time.

Additionally, it is technically difficult to perform the calculations for this provision because of numerous data limitations. Even under the calculation for FY 08, BEA was unable to completely account for all sources of income for evacuees. It is likely that BEA will continue to encounter these difficulties and produce limited income estimates in the future. Furthermore, BEA may also encounter difficulties in tracking evacuees, as it is uncertain whether such data will be available.

For the above reasons, we are proposing to define evacuees narrowly to ensure that an adjustment is made only to the extent warranted to address the sudden influx directly resulting from Hurricane Katrina, and not permanent changes in population level for host states. While we believe the most straightforward definition of an evacuee would be to consider individuals to be evacuees fro a time-limited period following displacement to another state, we have listed three approaches to define evacuees, and are soliciting public comment on the issue.

(1) The first alternative would establish a bright line test as to how long an individual would be considered an evacuee. Under this alternative, individuals would be considered to be Hurricane Katrina evacuees for up to 18 months following displacement to another state. This represents a substantial time frame during which the individual would likely have established residency in another state and become a functioning part of that state's economy.

(2) A second alternative approach is that individuals would be considered to be Hurricane Katrina evacuees while receiving FEMA Hurricane Katrina assistance. FEMA assistance is an available data source to identify the individuals. Receipt of FEMA assistance is an indication that individuals are not fully integrated into the economy of a new state, and expect to return to homes that were destroyed by Hurricane Katrina.

(3) The third alternative approach would be to consider individuals to be Hurricane Katrina evacuees while reliable data remains available and sufficient to identify evacuees and their income in order to carry out the provisions of the DRA. The statute does not authorize this Department to construct or develop its own data sources. Thus, we do not believe that Congress intended to require this adjustment to be made after reliable data is no longer available to support the adjustment.

We invite comments on the adoption for the definition of evacuee discussed above, or an alternate approach, to ensure that the effect of section 6053(b) of the DRA is limited to addressing sudden population influxes directly resulting from Hurricane Katrina.

G. Regulatory Impact Statement

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). The Regulatory Flexibility Act (RFA) requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any one year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a final rule that imposes substantial direct requirement costs on state and local governments, Start Printed Page 3395preempts state law, or otherwise has Federalism implications.

This rule announces the provisions of section 6053(b) of the Deficit Reduction Act of 2005. We do not estimate this regulation will have any significant effect on the economy. Nevertheless, we estimate the impact of the provision, once implemented, to be minimal. Our analysis suggests that the modification to the FMAPs will only affect Texas. The effect will likely be a minimal decrease in State Medicaid and SCHIP spending and a corresponding minimal increase in federal Medicaid and SCHIP spending.

In addition, the provisions only directly affect states. Therefore, there is no need to perform a regulatory flexibility analysis in accordance with section 603 of the Regulatory Flexibility Act.

H. Summary

We propose to adjust the fiscal year 2008 FMAP rate only for the State of Texas, by reducing the income estimates used in the FMAP calculation through the application of adjustments to reflect interstate population dispersal income and FEMA disaster assistance income for evacuees. Because this is the only income that can be attributed to Katrina evacuees based on BEA data, this income will be subtracted from the 2005 state personal income as published by BEA in October 2006 to obtain a new state personal income for Texas. This state personal income will be divided by the state population as of July 2005 to get a revised per capita personal income for each state. This revised 2005 per capita personal income will replace the 2005 per capita personal income in calculating the 2008 FMAPs.

Effective Dates: The percentages listed will be effective for each of the four (4) quarter-year periods in the period beginning October 1, 2007 and ending September 30, 2008.

FOR FURTHER INFORMATION CONTACT:

Thomas Musco or Robert Stewart, Office of Health Policy, Office of the Assistant Secretary for Planning and Evaluation, Room 447D—Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201, (202) 690-6870.

(Catalog of Federal Domestic Assistance Program Nos. 93.778: Medical Assistance Program; 93.767: State Children's Health Insurance Program)

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Dated: January 19, 2007.

Michael O. Leavitt,

Secretary of Health and Human Services.

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[FR Doc. E7-1174 Filed 1-24-07; 8:45 am]

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